A lot of property investors are looking to invest in California. It is predicted that The Golden State will be one of the top housing markets this year. CA has a wide variety of properties to offer and probably the highest potential rental returns. Investing in CA apartments has several benefits which greatly depend on whether you are planning to live in your apartment, renovate and flip, or use it as a long or short-term rental property.
Why do people invest in CA real estate?
Here are some of the crucial reasons why people decide to invest in CA real estate:
- CA has a thriving, diverse economy rooted in entertainment, technology, innovation, and business services. It boasts a strong job market and high employment rates. With such a favorable business climate, CA continues to attract renters and buyers, thus increasing the likelihood of steady cash flow for real estate investors.
- Its main appeals also include incredible entertainment opportunities, stunning beach views, warm weather, and a vibrant cultural scene.
- California’s favorable property tax rates help control investors’ expenses and enhance cash flow for those investing in CA apartments.
- Thanks to all the perks of living in California mentioned above, in many CA markets, the demand exceeds supply. Consequently, rental rates continue to increase, and so do home values.
Bear in mind that each California community has its unique character. There are many factors to take into consideration before you narrow down your choice, such as lifestyle, prices, growth, amenities, taxes, pollution, crime rates, commute distances, price to rent ratio, etc.
Although California real estate has a reputation for being overpriced, the state offers exciting opportunities for investors. The best cities to purchase a rental property in California include Los Angeles, Oakland, Sacramento, and Hawthorne, among others. Moreover, these are the cities people most frequently choose to live in once they decide to change their current home location. Mod Movers California professionals conduct numerous relocations every year while helping people move to their dream homes.
Why investing in CA apartments is the right thing to do
There are two main types of real estate to invest in – single-family and multifamily properties. Apartment buildings belong to the latter category. Whether you invest in an entire apartment complex or a single unit, the benefits you can reap are numerous.
Until recently, people believed that investing in houses and duplexes was better than investing in apartments. Investors preferred properties with land, believing that land carried the main value. Recently, however, apartments have been increasing in popularity. People have shown a growing interest in apartment living, making apartments a good investment choice, despite the fact that this change will take time to adapt to eventually.
We have listed the key reasons you should be investing in CA apartments as well as some challenges to take into account when making your final choice. Thus, you can make a more informed decision as to whether investing in California apartments fits your personal investment needs.
Steady cash flow
Apartments can provide you with a regular and reliable income stream for years to come. If you are an investor who wants an additional source of monthly income with a slow but steady increase in the value of your portfolio, investing in CA apartments is one of the best moves you can make. Other types of investment opportunities, like dividend stocks and annuities, provide payments to investors that don’t even come close to the amount of cash apartment buildings generate.
Supplementary income
The rent your tenants pay is your main source of income. However, there could be other, supplemental sources of income as well. These supplementary sources could make a significant addition to your monthly income. The most common supplementary sources of income for apartment complex owners include vending machines, laundry machines, and parking spots for non-residents.
Partnership potential
Unlike stock or bond investors who invest by themselves, multifamily property investors team up with others. Apartment buildings are a perfect type of investment for groups. Together with your partners, you can acquire better, larger properties, which can help all of you maximize your potential profits.
Leverage
Apartments allow borrowers to put down about 20-30% of the total sale price and finance the rest over a period of 25-30 years. Stocks, bonds, mutual funds, and other types of investment do not offer such benefits.
Tax incentives
From a tax perspective, multifamily properties make an ideal investment opportunity. Investors can take considerable mortgage interest and depreciation deductions. Moreover, they can often deduct travel and utility expenses, among other costs.
Equity growth
Over time, an investor will generally build up equity in their investment property as they pay off their mortgage. Equity will increase as the value of the property increases.
Investing in CA apartments has its downsides, too
Here are some of the most common downsides of investing in CA apartments.
Local market risks
When choosing a new address, one usually conducts thorough research to make sure the final choice will meet all the necessary requirements one has set. Before you pack your whole life, memories, and furniture, or you find experts to take this assignment, you give your best not to make a bad decision. Unfortunately, no matter how careful and informed you are when selecting your new home or your investment property, things change. Nobody, not even a professional real estate agent, can predict the future. The neighborhood you select could see an increase in crime and poverty, thus becoming less desirable. Consequently, the value of your investment could decrease.
Time investment
Money isn’t all you need to invest. Finding, financing, and buying an apartment building can take several months. And your job doesn’t end there. Although it is always recommendable to hire a property management company to handle the responsibilities of ownership after the purchase, that doesn’t mean you can just lay back and relax. You still need to supervise the property management company you hired.
Furthermore, apartments and apartment buildings often take several months to sell, and the closing process can be more time-consuming than you think. Besides, you don’t always get the price you want.
Maintenance costs
Apartments and apartment buildings require regular maintenance and their owners are the ones who pay for it. Your insurance may cover larger expenses; still, maintenance, repair, and replacement costs can really add up.
Issues with tenants
Even tenants with excellent credit and long-term leases can cause serious problems to property owners. In addition to being late with payments, tenants often leave their apartments unexpectedly or cause damage to the property they occupy.
Liability
In some cases, the owner is held responsible for accidents and crimes that happen on a property they own.